Building Products & Materials Update - October 2018

Building Products & Materials Group Overview

Introduction

Harris Williams is pleased to present our Building Products and Materials Industry Updatefor October 2018. This report provides commentary and analysis on current capital market trends and merger and acquisition dynamics within the global building products and materials industry.

We hope you find this edition helpful and encourage you to contact us directly if you would like to discuss our perspective on current industry trends and M&A opportunities or our relevant industry experience.

What We’re Reading

New Home Sales Fall 5.5 Percent in September as Affordability Issues Continue1

National Association of Home Builders 10/24/2018

"Sales of newly built, single-family homes fell to a seasonally adjusted annual rate of 553,000 units after downwardly revised August, July and June reports, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This is the lowest sales pace since December 2016. However, on a year-to-date basis, sales are up 3.5 percent from this time in 2017.

"New home sales activity has slowed this summer as housing affordability remains a serious issue,” said Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, La. “However, sales are up from this time last year and builders continue to report consumer interest in housing.""

New Construction Starts in 2019 to Hold Steady with 2018 Amount2

Dodge 10/25/2018

"The Dodge Momentum Index fell 2.9% in August to 164.1 (2000=100) from the revised July reading of 169.0. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. Pushing the Momentum Index lower in August was its commercial component, which dropped 6.1% from July."

Remodeling Confidence Remains Solid in Third Quarter1

National Association of Home Builders 10/18/2018

"The National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) posted a reading of 58 in the third quarter of 2018, remaining stable from the previous quarter. The RMI has been consistently above 50—indicating that more remodelers report market activity is higher compared to the prior quarter than report it is lower—since the second quarter of 2013. The overall RMI averages current remodeling activity and future indicators.

The future market indicators remained the same as the previous quarter at 59. Calls for bids rose two points to 57, amount of work committed for the next three months increased three points to 59, the backlog of remodeling jobs fell four points to 62 and appointments for proposals decreased two points to 59."

Construction Material Prices Rebound in September3

Associated Builders and Contractors 10/10/2018

"Prices for inputs to construction rose 0.3 percent in September and are 7.4 percent higher than a year ago, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics data released today. Overall prices for nonresidential construction inputs rose 0.4 percent, reversing last month’s downward trend. Among individual subcategories, softwood lumber prices are down 0.4 percent, yet are up 5.4 percent on a year-over-year basis."

Contractors Remain Upbeat in Q24

Construction Dive 10/10/2018

"The U.S. Bureau of Labor Statistics reported last week that the average hourly construction wage increased to $30.18 in September, up from $30.00 in August and 3.1% higher than September 2017. This is the first time, according to an Associated General Contractors of America analysis, that average construction wages for U.S. workers have surpassed $30 an hour.

Construction employment in September rose by 23,000 jobs, and of that figure, 18,600 jobs were added in the nonresidential sector — i.e. commercial building, specialty trades, heavy and civil engineering. However, association officials said the pool of qualified workers is growing thin and that even pay increases might not be enough to adequately staff their projects, which could increase costs and delays. In fact, the construction unemployment rate in September 2018 was only 4.1%, the lowest since 2000."

Public Markets5

Public Comparables5

Building Products

Building Products Distributors

Construction Materials

As of October 31, 2018

Relevant Transactions5

Representative Building Products & Materials Transactions

1. NAHB

2. Dodge

3. Associated Builders and Contractors

4. Construction Dive

5. FactSet

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